2020 results are in line with our expectations

Revenue in 2020 fell 2.6% year over year to $1,001 billion. Return to mother's net profit increased 13% year over year to $347 million, corresponding to $0.11 per share, in line with our expectations.

In the fourth quarter of 2020, revenue increased 22% year over year to $278 million; excluding the impact of terminal disposal, a 14% year-on-year increase in a comparable scale was better than the 1-3 quarters of 2020 (-11%, -14%, +11%, respectively), mainly benefiting from the recovery in container throughput. Gross profit fell 15% year over year to $63 million. The profits of associated companies and joint ventures increased 24.1% year over year. Adjusted net profit to the mother increased 64% year over year to $99.18 million ($0.03 per share), growing faster than revenue, reflecting a steady recovery in profitability driven by increased throughput and cost control.

Development trends

The goal for the next five years is to increase throughput and reduce costs. The company announced a new five-year plan for 2021-2025. The planned equity throughput reached 57 million TEUs (corresponding to a compound annual growth rate of 8.2%), and unit operating costs were reduced by 15-20% (corresponding to a 3-4% CAGR).

During the last five-year planning period (2016-2021), the company's planned equity throughput, total assets, and net profit increased by 60%, 50%, and 100%, and is steadily achieving the above goals. Compared to previous goals, we think the new plan focuses more on improving efficiency.

A healthy financial situation is expected to guarantee the dividend ratio. By the end of 2020, the company had $1.3 billion in cash on hand and a healthy leverage ratio. Management announced a dividend ratio of 40%, corresponding to a 2020 dividend yield of 5.8%. Based on a 40% dividend ratio, we expect dividend yields of 5.4% and 5.8% in 2021-2022.

Profit forecasting and valuation

Considering continued increases in throughput, we raised our 2021 earnings per share forecast by 11.2% to $0.10, while introducing a 2022 forecast of $0.11. We maintained our outperforming industry ratings while raising our target price by 19.4% to HK$6.66 (corresponding to 8.6 times the 2021 price-earnings ratio and 8.0 times the 2022 price-earnings ratio, with 17.7% upside from the current stock price). Currently, the company is trading 7.3 times and 6.8 times the price-earnings ratio of 2021 and 2022.

risks

Throughput or rate drops were more than anticipated.